We can find lots of apps that offer a “buy now pay later” system, which could make it easy for consumers to get the things they want without making an immediate payment. There’s one app that many people use to make this type of transaction, Afterpay.
With more than 5 million downloads on Google Play, it’s pretty noticeable that there are a lot of people who love to buy things that they couldn’t really afford. Although it does seem interesting as you can get anything without making a payment first, Afterpay does have terms and conditions many would consider red flags.
While instant gratification might feel good, one thing that’s certain is that happiness won’t last for long as the consumers need to deal with the terrible consequences later on. What are the specific consequences and disadvantages of using Afterpay? See more in the explanation below.
How Does It Work
Before making a purchase, consumers have to register the Afterpay method into their Apple or Google Wallet. They will have to download the app first and do the registration and connection process there.
Once it’s all set, now they can make a purchase using Afterpay. Most people would use Afterpay to buy stuff they couldn’t afford at the moment. When they choose Afterpay for the payment, the consumers have to pay 25% of the total cost as the first payment. Later on, they have to pay the remaining amount every two or six weeks until the debt is fully paid.
When the full price of the product is paid off, the people can do the process over and over again, creating the habit of purchasing something and paying for it later. They would gladly do it again as they might feel the instant gratification, although there are some clear disadvantages of using Afterpay.
However, when they couldn’t pay what they owed, that’s when the problems started to appear. So many people have fallen into bankruptcy because of their debts, and it would be best not to follow their steps.
How Do They Make Money?
Despite the disadvantages of using Afterpay, how do they make money out of it? Since it doesn’t have a terribly high interest rate, this is the question that many people would feel curious about. And to be able to grasp the answer, think about one thing: retail partnership.
Afterpay may gain profit from the established retail partnerships, and currently, they have more than 10,000 brands in their network. At the moment, the company is gaining a huge profit from the collective payment from each brand. With more than 19 million consumers making transactions through Afterpay, just imagine how much of a profit they could have.
Additionally, Afterpay also charges some fees when the payment is late. The cost for this is an additional $10 on top of the amount the consumers owe. If it’s late for an extra week, there’s another $7 to the fee and it continues to add until the payment is fully paid or the fees reach 25% of the total loan’s value.
Understanding The Disadvantages of Using Afterpay
Afterpay might be beneficial for those who are in need as they can make immediate payments, and the easy integration would make it easier for them to do so. However, the disadvantages are more than what the “goods” may offer.
High Late Fees
If you miss the loan payment, there’s an extra 10$ fee that you need to pay later. Although it seems small at first, the amount of the fee might get bigger as you miss more weeks. Eventually, the fees would be too big to handle, leading to more stress and depression.
Therefore, if you choose to use Afterpay, make sure to make the payments on time. Keeping the stress away is always worth it.
Another thing that’s worth mentioning is that Afterpay doesn’t let users decide when to pay. This could be problematic for those who have unstable income as they need to follow the rules to pay at a certain date.
Can Make a Bad Purchasing Habit
Ideally, we should only buy the things we can afford. Afterpay eliminates this problem and allows anyone to buy anything despite their financial conditions. What matters is that they have to pay the amount accordingly. This could potentially lead to unhealthy shopping addictions which might lead to more unpayable debts.
Doesn’t Have Any Effect On Credit Rating
Usually, when you pay loans on time, it will have a good impact on your credit rating. In the case of Afterpay, however, it’s not the same. Even when you pay the owed amount on time, it won’t affect your credit rating in any possible way.
The Risk When Using Credit Cards
Using a credit card as a preferred method for Afterpay is a bad idea. Although the app itself doesn’t apply interest, you still owe some on your credit cards. Credit card debt is bad enough, and it’s even terrible when you combine it with the pay later system. So, use your debit card for the Afterpay payment instead.
Although Afterpay has changed some of its terms and conditions, the debt system is still concerning as it could be really risky for those who have lower incomes. We shouldn’t normalize this due to its bad influences. So rather than buying the stuff you want, it’s always better to only make a purchase of the things you need.
If you insist on using Afterpay, we highly recommend using a debit card only to further avoid debt damages. Know your limits and never overspend your budget.